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looked at these bug a boos and made it possible for countless people to survive and to flourish as a result. i don't know how many presidents realistically have that kind of impact on the way we live our lives. ..
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ninety-five. >> it is a pleasure to be here. i want to congratulate end on a tremendous success at heritage and also what we believe is important for the free market and free society to work together. i hope that is the pattern going forward. my purpose today is to talk about my book "the financial crisis and the free market cure" i wrote the book even before i knew i was coming
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to the cato institute. people ask me why did i write the book? the basic answer is interesting to do what they were talking about. [laughter] because if you listen to the commentators they don't know what we're talking about. in addition it is important to on to a myth and they become very destructive over the long term and in relation to the financial crisis it was caused by the deregulation of the banking industry but it was not deregulated under the bush administration. we had a massive increase. the pitcher backed, the privacy act and sarbanes-oxley. while there is plenty of green on wall street it was not us satin play of greed
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like it swept out of the north. [laughter] that is not what caused the financial crisis. in my book i talk about the five khmer -- primary cause. we live in a mixed economy not the free-market the least regulated technology has done very well the most regulated in the world is financial-services. that is very had the biggest problems. no surprise. government policy created a massive disinvestment focusing on the real-estate market that bubble burst. third, large financial institutions called wall street made serious mistakes. if i was in charge i would let the institutions fail but they were in sentiment
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by the government model but almost eerie thing we have done since the financial crisis started, even things that may have been in the short term would drastically reduce standard of living long term. number five, the real cost and kidder are philosophical. finally if we don't change direction in the united states faces serious long-term problems. we're doing bad things to our children and grandchildren. what happened? we built too much residential real-estate investor at least $3 trillion and it made as much as $8 trillion. too many houses, too big of houses in the wrong place we should invest in
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education, manufacturing, te chnology. should have spent less and save more and borrow bus from foreigners. one thing people don't get it is housing is consumption. they think they invested in the house if it is an investment. but we consume a house if you invest you are really over consuming. we had a massive over consumption in that process we taught millions of people how to do the wrong thing, build houses, residential and legal attorneys those people try to learn how to do something productive in a global economy which is why it is difficult to deal with
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unemployment. if you drive up construction wages we did that with the artificial construction that had millions of manufacturing jobs overseas like india and china. initially they did not know how to do that well and now we have a difficult time to get the jobs back. how did we make a mistake? the markets are constantly in correction process but never of that magnitude. government policy is needed for that type of mistake the federal reserve, the fdic in government housing. and a fundamental context it was with the federal reserve. in 1913 the monetary system was nationalized.
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there is no private monetary system. the government owns it. if you have problems in the monetary system by definition it is government policy. if the interstate highway bridges are falling down you would say it is the government's problem that is true with the monetary bridges. it was created in theory to reduce volatility but in practice they reduce its short-term and increased problems long-term. in a free market they're constantly correct and old businesses are failing it is as important as the creation process the fizzle capital cannot be reproduced --
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redirected when you stop the process yet a bigger problem in the future. is analogous to the 13 year-old than be surprised if they have bad behavior a 16. it keeps the correction from happening. away u.s. government can run the massive deficit with the ability to plant many and today it could not print money note telling the interest-rate it would not be credit worthy. that creates a huge temptation for politicians and i believe we'll ever discipline that we have specific errors that led to the recent financial crisis. alan greenspan was head of the fed in the early 2000 it
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and wanted to be a hero and getting ready to retire and we have a minor correction going out on a good note he lowers interest rates and creates negative real interest you to borrow less than the inflation rate in less than the appreciation rate which created a huge investment in housing. then at the end of the term he realizes he screwed up then they start to raise rates rapidly increate the inverted real -- real curvet never occurs naturally. that means short-term rates are longer than the height gauge long-term. you don't want to interest-rate because it is risky ears of the market's
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never do that for only the fed. wear that matters banks make money with short-term loans and if you create inverted yield curves they have negative merchant danish -- negative margins but now with banking is to get higher interest rates to take more risk so most of the bad loans they went exponential under the inverted rate that was the longest in u.s. history because at the same time bernanke inverted rates the fed claimed that the good times would go on for ever so they created a huge incentive to claim the good times would go on forever. we could not have mathematically had abubble without the money. where did the money come
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from? to a question. second, the fdic insured bank deposits. this sounds like a good thing but operated in atlanta we competed with a number of community banks which took over one after failed and it looks like a lot had failed. those that are in the hotel business got together and put in a little bit of capital than leverage radically at very high interest rates since the government guarantee their deposit they did not care they let that to those who started the bank and then went broke and they lost $0.50 on the dollar. countrywide, washington mutual, golden west and
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indymac with high-risk portfolios no way the market would finance country ride without the government guaranteed deposit insurance. that was a major jolt -- major distortion but the government housing policy goes back a long time where the government tries to raise the motorship under the theory is a good thing. but owning a home does not change human behavior. it is the opposite so what allows you to own a home results in better behavior. the government subsidies started with tax credits and then in the early '70s to
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start on a path with the community reinvestment act the force banks to get from the lending business and they have no business to be in that business. but the big event happened september 1989 where bill clinton who was president made it mandatory and said freddie mac and fannie mae at least half loans have to be in affordable lending. that was the dramatic announcement because of the size of fannie and freddie and they identified the risk involved in it and said fitted for a year so big
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that they cannot meet the goal without radically reducing menders -- lending standards and if they achieve that goal they will take so much risk that they could get into financial trouble and they are so vague they can take up the whole financial system. nine years later date of $5 trillion in had $2 trillion of some prime even before they failed they were leveraged 1,000 / one. like a net worth of $10,000 and can borrow to million. you can only do that if the government guarantees your debt. this is under estimated. the dominant player with half of the market share driving down lending standards to suck everybody into that whole.
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and withhold industry with half of said dictate but politics played a huge role. and that the largest banks in the u.s. we were running the numbers it was mathematically certain fenian freddie we're going broke even if 15 year-old could say are going broke. we met with congress and chris dodd and barney frank. [laughter] i called barney frank evil because he was smart but would not look at the facts. why did he inveighed? he had a religious belief of affordable housing and there were huge political
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contributors to the republican party. so congress you dated and it sought to the market down the tubes. but fundamentally they had a massive disinvestment the fed printed too much money. the was that whole issue of the derivatives market which i a cover in my book but i want to focus on what is more important and what i think believed the financial crisis and what i believe the cure is bright think that was primarily caused by philosophical ideas. combination of altruism and pragmatism. it is not benevolence.
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altruism is the otherism that everybody is more important than you. as interpreted the collectivist importuned in the individual does not matter. everybody has a right to a nine scouse provided by hugh? and everybody has a right to free medical care. provided bayou? my right is for the doctor to provide me or in slave somebody else, that is the opposite. you have the right to what you produce or create the appeal have the right to let somebody else produces or what somebody else creates. interesting thing about business to to live service but if you are all dressed
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euratom business very soon. as a backup philosophy what we teaching graduate business schools the basic rule is to do what works. here is the dilemma but here is one of the biggest problems rationality demands a long-term perspective he cannot act on principle because it has none. it is not surprising we have so many ethical violations because people did not act on principle. you should just do what works. altruism and privatism you get the free lunch mentality we have massive deficits but
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nobody really wants to do anything about the. and that leads to a lack of personal responsibility and that is ultimately the death. i would say by far the central issue of our society today is personal responsibility. our irresponsible or are you entitled to what somebody else's -- somebody else produces? talk about the tyranny of the majority to talk about the abuse of individual rights but they realize and 51% realized pretty soon the party is over than 60 percent want a lunch from 40% but then finally the 30 percent quit the call is
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philosophical and so is the care expressed by thomas jefferson with life and liberty in the pursuit of happiness each individual moral right to to his own life each individual's moral right to use the product of their labor if you produce a lot you get a lot or give away on whatever terms you want. it demands personal responsibility because there is no free lunch their rewards rationality life liberty in the pursuit of happiness, talk about liberty for just a minute. it is a nice thing to have but it is a lot more important. liberty makes human progress
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possible. the only natural resources the human mind. 10,000 years ago it was useless to day 15 years ago telecommunications it was expensive and those of fiber-optic sara's only one true natural resource. the interesting things about human beings to be productive you have to think for yourself and believe what is true if to plus two is five you cannot think productively many government rules and regulations force you to act if to plus two is
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five but unless somebody does something better creativity is only possible but it cannot contribute to progress but freedom is essential not because it is nice but man's nature is a thinking independent being looked at life expectancy 250,000 to about the 1700's human life expectancy in eve of the most men. there has been a radical improvement across the
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planet. in the late 1700's that allow that to happen. it was a concept of rule of law that was a human invention that radically improved the life expectancy. because being free is essential for productivity. what about the of pursuit of happiness? every betty aces did for somebody else's good. jefferson said each of us has a moral right to. not guarantee success that we have the right. world changing a dia when people have a right to their own life there naturally other -- the eyes of other
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people but in communist societies they are slaves to each other in each of us has a right for our moral happiness it is a very selfish idea to pursue your own happiness but it is selfish in the proper context we forget that not to pursue their selfish interests not to take advantage of other people but that is so destructive because nobody will trust you and if you try to manipulate other people you will do more damage to you or psychological damage to yourself. but it is not about some sacrifice. the question i asked the university students ask yourself or your
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children, you have as much right to your life as anybody else has to there's? of course, you do. why would you believe anything different? so to pursue the self-interest is not about taking a vantage of the other people although there is a moral code and i call it the trader principal trading value for value. in the banking business they let us make a profit and we get better together. said now we've figure out to trade value. there is only then win and lose loose pretty soon when you get so sacrificial with
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so loose / when you get better then end up in the lose/lose relationship so you should ask what is in it for you but also for them. if there is nothing for them it is nothing for you. it is in your self-interest but you have to ask what kind of world would i like to live-in? so it is not something in view but it isn't a meaningful life for you? you cannot defend a free society is a fundamental philosophical issue. that is part of the genius
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of but that is why i am responsible. imf trained business guy and i think it is impossible but i do think we're in economic recovery. of the conservative acting like with economic disaster it is unlikely and it is like crying wolf. and we would be stuck with higher unemployment and with the 1970's which train one-and-a-half been 2% growth rate or the 5% that
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we should have is huge. we are probably not in the short term we are setting up a wave below par gross but i do get worried about 10 or 20 years down the road. we do have a recipe for economic disaster. if we don't change from altruism for what made america great, the numbers are staggering the unfunded liability with new obamacare is an excess of $100 trillion. the way they do accounting with a space negative statement we of a
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dysfunctional policy and it is a nontrivial problem. and a failed k through 12 education system. we have the potential for bad times but it is not too late. these go exponential in about eight years we have that time frame. if we don't move in the next four or five years it becomes almost impossible mathematically without social upheaval. that would not be fun. i don't think that i am fairly optimistic. that sounds strange but i think that fundamentally
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don't like big government when time is moving the wrong direction like we did in 2010 when americans pushed back needlelike this direction is the caveat but we have the best idea is good news is sadism doesn't work. it fails over and over. johnny hauser prize they were but that did not surprise me at all. communism always fails. and stated similes sales but will we be there with the right ideas to move the country in the right direction? we do have a bright ideas.
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i seemed we will win because they have the right ideas. and to have to do with individual ethics we had problems economically but also of a deviation as business and politics. my company went through better given the nature of the business without a single quarterly loss. we had good people and strategy but mostly the right kind of coaching and ideas. 10 core values that is three great virtues, a sense of purpose with the employees. the one to make the world a better place but do that for themselves. we combine that energy doing good work in the world but
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you have to have a right to your own life and radical that it -- radical decision making it to be a very thoughtful process and most importantly with a clear sense of purpose you can raise your self-esteem. that is a foundation for happiness. i made a good time on friday night but i call it blood sweat and tears happy when you're 80 years old to sing card earned energy that is the end of the game. nothing wrong with many it is not the end.
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happinesses the and. but properly aired is the foundation. i want to share one thought for everybody in the room the single biggest driver is your work of self-esteem you spent his portion it amount of time that is what makes work important and why the issue about unemployment is way more than economics, but a very spiritual issue because it is important. i say it is important you do your job well but mike told me how well you do your job you will never fool you. of the peter and do your
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work the best you can you go over your self-esteem. if you are a college student that is your work you lower your self-esteem even if you make a good grade. if you do it the best you can he will raise your self-esteem that is better than a good grade, it is about your character, a fundamental human need. the societal implications implications, take a construction worker, a bricklayer who has the tough and hard job. my granddad had a job like that but they are successful, raise their children, and has a hard
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life but successful in that context. interestingly he get something powerful from his work, he gets to be proud and have self-esteem. the bricklayer getting welfare maybe better off but he loses something important, his pride and self-esteem. statist are involved in this discussion. is a false discussion but it is interesting. while americans care about security, people did not get on the boat to come to jamestown the united states is a land of opportunity. the opportunity to be great and fail and try it again but the opportunity of that bricklayer to live life on
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his own terms, to pursue his personal happiness with his values to pursue personal happiness with their belief as free and independent people that is what made our country so great and what makes it so precious to defend. thank you very much. >> that was really terrific. [applause] always glad to hear another optimist in washington. [laughter] you have all seen the book out side and perhaps you had a chance to read it, it is full of great insight. let's have a few questions.
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>> how can we move things further in the direction you talk about as opposed to the government? >> i wish i had the answer but if you look at what happens in the united states eighth philosophically remove in the wrong direction so including personal responsibility not that we ignore community be you cannot be entitled to what somebody else produces or creates. in the end long term we have to recapture the education system. the left to go over the
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university's and we have to get the system backed. the a.d. is in washington with the school system the way to do that is to privatize with vouchers or credits but that creates a competition and since our ideas are better they would win. long term the biggest fight is to privatize and minorities and low-income are huge victims of the education system. it is not designed to deal effectively except those in college and that is not effective. we have to combine the right philosophical ideas and this is what heritage does well, we have to impact
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opinion leaders by world-class research these experiments have been tried and failed. if we do it right to remain not convince the far left we are right but abb less confident in their ideas. we have to preach to acquire some those who do not agree we have to have world-class research that refutes the consequences that comes from their good policy. >> thank you for your remarks. you say americans fundamentally don't want big government so why do we keep electing big government?
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>> that is a fair question. i don't know. i saw that after the last election. when you ask them questions they don't. but unfortunately a lot of people can't integrate what that means they want to the free lunch and if they want the benefits so is the intellectual disconnect and lack of integration that is the fundamental issue where the objective arguments are more important to show them it doesn't work with negative consequences we have to show older people held that it is for their
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children and of the grandmother's what to do bad things to there grandchildren they have let people rationalize but in "the new yorker" you have to know anybody who writes that is so detached from reality it is hard to take them seriously but they want to think there is no problem even though the facts are there had to keep people inspired at the same time to tell people i would give used a false negative consequences. it is a harder message. everybody in here as a parent knows if your kid is at 13 it is easy to let them get away and usually one parent is stuck with that
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job. that is the job how to make the discipline policy. >> i am interested in your perspective from a former banking perspective what she chatted with the gse right now with what should continue the housing market has not recovered had we not put that back into a tailspin again? >> craig question i remember with a play no role we did not have a problem 20% negative owned you went to the savings-and-loan and that problem was very small but during the '60s and '70s
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politicians wanted the viet nam war and we got a rampant inflation and tear the '80s they tried to break that savings-and-loan and financing houses and then they paid 13%. that is when frannie and f. brady filled in the gap is developed overnight. one year from now they are closed. there will be markets solutions and capital allocated more rationally it is more to subsidize consumption and it eats the seed corn but the reasons they may and freddie mac is
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because it is not economically rational and if you want to subsidize home ownership do it with the cash payments ever by a nose what you're doing. i am opposed but there is a certain integrity verses subsidizing wear fha and they cannot figure out when it goes to people who are not in the housing business actually large investment banks do this stuff. but one year from now the house financing would be rational. it would be best in the consumption. >> speaking before your talky mentioned the extent
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of the fed's involvement it was so mind-boggling. >> people do not realize how bad dodd/frank is. it is a conscious effort to take over the financial system of united states. the way to do it safely is in the back room if you nationalize it socialism doesn't work because everybody can see it has failed but if you blame somebody else then it is a great way to do it. they had not made any big moves yet but with the consumer compliance, a credit allocation they can keep all four products you can see some prime consumer
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lending they control the capital ratios of the bank making this the prime high-risk mortgage have half as much capital to increase the prime lending they can subsidize grain energy therefore they can with the green energy loan as the dirty energy loan so they can control the allocation and when it blows up? and i believe this is intentional to have massive consolidation i grew up as a
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community banker and it is very important to our country. why is that? and a big institution that makes you a rebuke to hire other people. if you run a community bank and said of thinking about things that allow you to run the business you have to make bureaucrats happy. almost none have been started since stock offering. but micromanagement today, we have to have these programs approved by the federal government. that is hard to believe because the tellers have to
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be approved. you have got micromanagement of large financial institutions so they want to consolidate the industry into 5920 players then they control it. they like the community banks. they don't say that but they want a consolidated industry they can control. also the lending standards are the worst in my 40 year career. why? they have the obsession with standardization. it is totally a customized process. you can run numbers and they're hopeful that the end of the day they should not be made based on the numbers that somehow they will get it done and if you have the
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judgment you can be accused of discrimination so what do you have to do? a standardized process has to be higher standards. so it tie-ins standards more than any time in my career so the huge job creators don't have much access to capital. i don't know. control the banking business in the allocation. >> last question. >>. >> back to the issue of
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people leaving they donate to rely on the government with the baby boomers what they have not saved for retirement, it is such a stark contrast of those who carry balances on their credit card and as between different habits so that is concerning it creates the psyche not to sever the safety net because i might need it. so have you seen as strong change in that area? >> note question of change. it is way up under saved. a relatively small percentage say not just incumbent self discipline for the retirement and
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basically they felt their house was savings but when you actually mislead doing damage to consumers. of course, the house may be worth less than the other in don't have the self discipline. that is the economic challenge and of course, but to punish people that were saved for and the banking business particularly older ladies may be has-been's died and they worked hard to put money in the bank account there are some with a live on the interest of that savings. and bernanke consciously is holding interest rates below the market rate and stealing
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from those old people and punishing savers. some go into riskier investments but you should not. you should live off the interest and they probably could not being held down artificially. a massive distribution of wealth probably the biggest in u.s. history from savers to will buy houses in the name of economic activity. but it reduces confidence. it has ethical consequences. >> that is not at six.
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that is what is wrong with government. [applause] >> as president of the heritage foundation and as president of the cato institute not when word that i disagree with. if you have a copy of the book and with like to have it signed he will do that now. we are adjourned. [inaudible conversations]
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>> the author of five previous books the new book is guest of honor. quieted this dinner drive the nation crazy? >> guest: a remarkable moment in history completely forgotten because we just don't know about scandals like this. our leader has changed. when booker t. washington walked up the first deaths of the white house he was the first african-american to be invited to sit at the president's table. had never have been before. they had been invited to meet with the president and other offices, business meetings all the time, but no one ever sat at the
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president's table. then nation was outraged. it was astonishing. >> host: what about him? >> guest: he had a very successful relationship with theodore roosevelt. they were working together to try to fix the race problem in which is just as much with us in 1901 as today. say were trying to bring like-minded people to government and have these conversations and one day roosevelt said why can't i invite him choo-chooing me for dinner and makes business with pleasure? it was innocent and unleashed the incredible outpouring of indignation from all over the world because it never happened before. >> host: was the president's schedule always
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public? how did they find out? >> guest: it was always public and covered by a a lowly journalist who probably hated the job and his job to report he had lunch with someone so and the dinner to place in the evening and at about midnight the journalist looked at the president's schedule and probably rubbed his eyes because he saw a broker to washington dined with the president. the news went out on the wire and it was like a thunderclap and had 5 inches headlines coach said things we literally cannot repeat today about why this dinner was such an outrage. >> host: what was the reaction of mr. washington and the president? >> gaffers they were bemused this will flare up and go
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away but they quickly realized that would not have been. it seemed that every person america had to have an opinion whether or not the dinner was the right thing to do. funny responses, and mark twain you think would be in favor said absolutely not. president is a high class tenet at the white house and has no right to express his personal feelings by inviting a black man to dine there. the reaction fell into predictable sections the north was supportive and the south was not. but even the french had an opinion and it was actually we are not amazed it is the first time but that it ever -- never happened before but you can find a reaction all
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over the world. >> host: what was the gist of said dinner conversation? >> guest: very innocent. roosevelt had taken a hunting trip, their kids, to roosevelt children wrap the table, a just a wednesday night at home with the roosevelts. nothing special. after dinner they retired to talk about race but the dinner itself was a family evening taking place at tables, all over america. but at this table there was a hot seat. >> host: final question. what was on the menu? >> guest: it was not recorded by roosevelt loved hot food and plenty of it to. probably convert food as we know it today. >> host: the author of a guest of honor. thank you. >> one cannot count the
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times american say we are the best country in the world. with a marvelously stupid thing to say. of all the countries in the world, everybody thinks their country is pretty good. why do we have to believe that we are the best? what does that mean? why do we have to assert that all of the time? and what does it mean to other people? american products go around the world, information products coat around the world. it is seen by every corner of the world and we

Book TV
CSPAN January 26, 2013 11:00pm-12:00am EST

Education. Non-fiction books and authors.

TOPIC FREQUENCY Washington 5, Us 4, U.s. 4, United States 3, America 3, Freddie Mac 2, Freddie 2, Theodore Roosevelt 1, Frannie 1, Johnny Hauser 1, Mark Twain 1, F. Brady 1, Booker T. Washington 1, Hugh 1, Thomas Jefferson 1, Chris Dodd 1, Alan Greenspan 1, Bill Clinton 1, Bayou 1, Kidder 1
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